Apple iRipoff? How cheap the new iPod nano costs to build

by Andi

“Oh well, here’s another article from that Apple hater”, many of you will say. Well, this is not necessarily a hate article… It’s more of an eye opener if you wish.

As I was happily surfing around the ‘Net, I found the bill of materials for the new iPod nanos, and my jaw dropped a bit. I did know that prices keep on tumbling down, but I did not know that they’re almost freefalling. I also didn’t know that a ClickWheel was so cheap to make.

What struck me then is that Apple has possibly already covered the R&D costs and has started reaping some big big profits from the nanos alone. If the costs aren’t covered, then they’ll be in a matter of days.

I know you’re curious already.. read on for the run-down.

Oh, and excuse me for the geeky picture.. I just couldn’t help it 🙂

iSuppli has recently taken apart the nanos and have evaluated and compiled a bill of materials for it.

Apple has succeeded, by changing part suppliers and thanks to the continuous price drops, to make a feature-richer, redesigned iPod nano for less money than the previous generation.

OK, here are the numbers: the 4GB version costs $58.85 and the 8GB $82.85. The only difference comes from the flash memory. Yes you math buffs, a four gig slab of memory costs $24.

So, let me just cut the gibberish short and show you the list. Enjoy..

Direct materials cost estimate of the new iPod nanos (US$)*

Component

4GB

8GB

Flash memory

$24.00

$48.00

Display

$10.60

$10.60

Core video processor/microprocessor

$8.60

$8.60

Electro mechanicals

$2.44

$2.44

SDRAM

$2.72

$2.72

Mechanicals

$2.33

$2.33

Misc. components

$2.25

$2.25

battery

$1.40

$1.40

Power management IC

$1.38

$1.38

Video driver

$0.85

$0.85

CODEC

$0.90

$0.90

Mixed signal array / Touch wheel controller

$0.65

$0.65

Buck regulators

$0.15

$0.15

Utility flash memory

$0.59

$0.59

Subtotal

$58.85

$82.85

Source: iSuppli, compiled by Digitimes, September 2007

Of course, this is only a list of material costs. The development, assembly and transport of the products aren’t stated here. Let’s consider that the end cost is $70 for the 4GB model, and $100 for the 8GB model. Still, there’s a leftover of over $100 for both models. Quite a lot, isn’t it?

There’s now a lot of money to be put in further (and hopefully better) R&D. The most part of it will probably go, as usual, to the marketing and ads section, which is the heart of Apple.

As a purely economical fact., no other company is able to buy in such volumes and get such rebates as Apple. That’s why other companies have to accept far, far lower margins, or to make some compromise, design-wise or material-wise. Of course, all of them get heavily bashed for the smallest shortcoming. Why don’t Apple get bashed for their many bloopers? And, most of all, why do the high quality, mostly better, players, get smashed with the almighty ‘It’s no iPod’ BS?

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13 reviews or comments

WHBERRY3 Says: September 19, 2007 at 6:19 pm

And oil costs how much in raw materials? Corn is 3$ per bushel at the farm. A mirror for your car is $5 to produce, $150 at the parts counter. Most retail items are marked up 100%. What a stupid article and kudos to apple for keeping the price so low. Maybe Andi should go back in time and pay $500 in todays dollars for a Sony Walkman. 😉

I do remember when the walkman costed $500… but then, it was a revolutionary and unique product… something the iPod isn’t at all. Am I right? I’d really want some logical arguments the next time… a mirror for the car costs so much because the company KNOWS you NEED IT, alright?…

moe: Yep, it’s a free market, I don’t like their prices, and I don’t buy their product. This is a blog where people tell the world the news, interpreted and morphed by personal opinions. So this is just a personal opinion… Yes, I consider that the features/price ratio is already quite unfair, and after knowing the production costs I think it’s outrageous

what a ridiculous article! Where are the costs of r&d, cost of designer, packaging, shipping? do you think it free?

GinaSanDiego Says: September 20, 2007 at 7:08 am

It’s called ENGLISH! Put together sentences! You want to be heard…then make it sound/look/feel correct!! Man, the grammer and spelling here is really, really bad. Much worse than the product you are griping about! (ie: “walkman costed”, “why don’t Apple get bashed…”,”All your cash belong to us”. Cut the gibberish, indeed!!

If correct that is a nice mark-up and there is nothing wrong with that, if people are willing to pay $x then why not charge $x. R&D and marketing will also raise the price considerably.

rickman Says: September 20, 2007 at 7:31 am

if you think about everything in the american economy especially the products which are made in jobs that have been outsourced to other countries cost next to nothing to produce but are marked up at least 100% in most cases. Take for instance sneakers, it takes about maybe $5 to make a pair of nice basketball shoes and there are basketball shoes on the market at $160, its ridiculous but that is American economy, as someone said in on of the earlier comments, its a free market you don’t have to buy the product

Oliver: I did mention production, packing and transportation.. Also, think of the volumes sold, it’ll be covered pretty fast.

Gina: ‘all your base are belong to us’ is a known geeky sentence.. ‘costed’ was a mistake, true.. and Apple to get bashed… well Apple are more people, a company.

Al: yep, boss… that’s what they do. I’m just trying to say that they’re not worth that $x here

rickman: also true, but is it worth it?.. there are always options that offer you the same quality, yet for a fair price. I’m pretty much against paying $x just for the brand name, especially when other, less popular brands, are offering better prices and better quality in a struggle to defeat companies whose best division is the marketing division.

oliver Says: September 20, 2007 at 12:40 pm

once again you don’t take in consideration the cost r&d/marketing and design which the highest in most electronic products.

Sorry but still a bad analysis.

You can do the same with any products even for a car, before any units get manufactured company spend a lot of money.

Anon Says: September 26, 2007 at 9:39 am

GinaSanDiego, it’s spelled “grammar” ya f**in genius.

ami Says: May 3, 2008 at 10:48 am

Apple not only sells iPods,they sell a sense of status and lifestyle.Look at its interface,sleekness.Owning an Apple product really feels different from owning other brands.Its a kind of thing that can’t be measured in money ^^

GripperDon Says: May 18, 2008 at 1:33 pm

Apple is a greedy as they get. they pay about 1/4 of the parts cost shown. Hey buy their stock and then youcan ask why they backdate options for Jobs and give me a Gulstrean jet. It’s all about the money for the guys at the top. Don’t you all get it it’s called CAPIALISM. If you got the Capital you canhave the Jizim.

question Says: October 17, 2009 at 7:17 pm

I know its been a long time since this blog was posed but you have failed to convince me what “other, less popular brands, are offering better prices and better quality”. Dude I have yet to use another MP3 that offers the same effectiveness as an iPod and iTunes…the competition is garbage which is why Apple can afford to charge what they charge. (FYI posted from a MAC which is the BOMB!!!) LOL